Noble A. Craft and Nathanial A. Craft v. Sue Ellen Davis and Sosoy Co. Corporation ( 2008 )

COURT OF APPEALS
SECOND DISTRICT OF TEXAS
FORT WORTH
NO. 2-07-332-CV
NOBLE A. CRAFT AND
NATHANIAL A. CRAFT APPELLANTS
V.
SUE ELLEN DAVIS AND
SOSOY CO. CORPORATION APPELLEES
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FROM THE 96TH DISTRICT COURT OF TARRANT COUNTY
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MEMORANDUM OPINION 1
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In thirteen issues, Appellants Noble A. Craft and Nathanial A. Craft appeal
from the trial court’s confirmation of an arbitration award. Because we hold
that the trial court did not err by confirming the award and that the trial court
1
… See Tex. R. App. P. 47.4.
did not abuse its discretion by denying the Crafts’ motion to modify the
judgment, we affirm the trial court’s judgment.
F ACTS AND P ROCEDURAL H ISTORY
In December 2003, Appellee Sue Ellen Davis organized Appellee SoSoy
Co. Corporation, a California corporation, for the purpose of developing and
marketing a line of cosmetics. Under an agreement dated November 30, 2004,
Davis transferred 25% of SoSoy’s outstanding stock to Noble and 25% to
Nathanial; Davis retained the remaining 50%. Noble was named President and
Treasurer of SoSoy, and Nathanial was named Vice President and Secretary;
Davis remained CEO. The three officers made up the board of directors. The
parties also entered into a noncompete agreement, which provided that any
disputes “not amicably settled” would be subject to binding arbitration.
In May 2005, the parties entered into another agreement. Under this
agreement, Davis consented to transfer “additional [SoSoy] stock to equal the
ratio of 33-1/3% of all of the outstanding shares” to Noble and 33-1/3% of all
outstanding SoSoy stock to Nathanial. The parties further agreed that if the
board of directors formed a new corporation, all SoSoy stockholders would
transfer all stock and interest held to the new entity. The agreement provided
that “this agreement will replace and will survive any and all agreement
pertaining to the equity issue previously agreed upon.”
2
The parties ultimately could not agree on marketing strategies for SoSoy’s
products, leading to serious conflicts between Davis and the Crafts. At some
point, the Crafts set up a Nevada corporation, and in early May 2006, they
attempted to transfer SoSoy’s assets to the new corporation.
On May 19, 2006, the Crafts filed an original petition alleging that Davis
was attempting to take over control of SoSoy, that she had breached her
fiduciary duty to the Crafts and to SoSoy, and that she had breached her
contract with the Crafts. Davis and SoSoy entered a general denial, asserted
affirmative defenses, alleged that the contract was unenforceable because of
the Crafts’ prior breach and repudiation of the contract, and entered
counterclaims. Davis also filed a motion to compel arbitration, which was
granted.
In accordance with the trial court’s order, the parties arbitrated their
dispute through JAMS, a private alternative dispute resolution provider. The
arbitrator found that Davis did not breach or repudiate the contract and that the
Crafts breached the contract and converted Davis’s personal property. The
arbitrator awarded Davis $18,000 for her breach of contract claim, $2,000 for
her conversion claim, $26,950 for her attorney’s fees, pre-award and post-
award interest, and the arbitration fees and expenses she incurred.
3
Davis filed a motion in the trial court to confirm the arbitration award and
asked that the court grant her costs related to the arbitration as provided in the
award. The motion did not specify the amount of costs requested. The Crafts
opposed the confirmation and filed an application to vacate or modify the
award. The trial court entered a final judgment confirming the award and
ordering the Crafts to pay Davis’s arbitration costs of $9,353.07.
The Crafts then filed a motion to modify the judgment in which they
argued that there was no evidence in the record to support the amount of
costs. Davis subsequently filed a statement of arbitration fees (“billing
statement”) claiming payments to the arbitrator of $9,353.07. After a hearing,
the trial court denied the Crafts’ motion to modify the judgment.
S TANDARDS OF R EVIEW
A court of appeals reviews a trial court’s confirmation of an arbitration
award de novo. 2 Our review of an arbitration award is extraordinarily narrow;
we “indulge every reasonable presumption in order to uphold the arbitration
award.”3 The party seeking to vacate an arbitration award has the burden in
the trial court of bringing forth a complete record establishing a basis that
2
… Hisaw & Assocs. Gen. Contractors, Inc. v. Cornerstone Concrete Sys.,
Inc., 115 S.W.3d 16, 18 (Tex. App.—Fort Worth 2003, pet. denied).
3
… Id.
4
would warrant vacating the award.4 Without a record of the arbitration
proceedings, “the appellate court will presume the evidence was adequate to
support the award.” 5 We will not vacate an arbitration award for a “mistake of
fact or law.” 6
We review for abuse of discretion a trial court’s decision on a motion to
modify a judgment.7 To determine whether a trial court abused its discretion,
we must decide whether the trial court acted without reference to any guiding
rules or principles; in other words, we must decide whether the act was
arbitrary or unreasonable.8 Merely because a trial court may decide a matter
within its discretion in a different manner than an appellate court would in a
4
… Teleometrics Int’l, Inc. v. Hall, 922 S.W.2d 189, 193 (Tex.
App.—Houston [1st Dist.] 1995, writ denied).
5
… Statewide Remodeling, Inc. v. Williams, 244 S.W.3d 564, 568 (Tex.
App.—Dallas 2008, no pet.).
6
… Grand Homes 96, L.P. v. Loudermilk, 208 S.W.3d 696, 705 (Tex.
App.—Fort Worth 2006, pet. denied); Crossmark, Inc. v. Hazar, 124 S.W.3d
422, 429 (Tex. App.—Dallas 2004, pet. denied); Jamison & Harris v. Nat’l Loan
Investors, 939 S.W.2d 735, 737 (Tex. App.—Houston [14th Dist.] 1997, writ
denied).
7
… Eng’rs’ Petroleum Co. v. Gourley, 243 S.W. 595, 598 (Tex. Civ.
App.—Fort Worth 1922, no writ) (holding trial court did not abuse its discretion
by amending judgment during term); see also Ferguson v. Naylor, 860 S.W.2d
123, 126–27 (Tex. App.—Amarillo 1993, writ denied).
8
… Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–42
(Tex. 1985), cert. denied, 476 U.S. 1159 (1986).
5
similar circumstance does not demonstrate that an abuse of discretion has
occurred.9
A NALYSIS
Eleven of the Crafts’ thirteen issues relate to whether the arbitrator
exceeded his powers, made a gross mistake, or manifestly disregarded the law.
An arbitrator exceeds his powers when he decides matters not properly
before him.10 Although the Crafts claim that the arbitrator decided issues not
submitted to him by any party, without a record, we cannot determine whether
Davis or the Crafts asked the arbitrator during the proceedings to decide those
issues and thus whether the arbitrator did exceed his powers. 11
An arbitrator makes a gross mistake if the mistake is one that “implies
bad faith or a failure to exercise honest judgment and results in a decision that
9
… Id.
10
… Pheng Invs., Inc. v. Rodriquez, 196 S.W.3d 322, 329 (Tex.
App.—Fort Worth 2006, no pet.).
11
… See Kline v. O’Quinn, 874 S.W.2d 776, 782–83 (Tex.
App.—Houston [14th Dist.] 1994, writ denied) (holding that without a record
of the arbitration, the court was unable to determine what claims were
submitted to the arbitrators, that nothing in the record supported Kline’s
arguments that the pleadings and proof submitted to the arbitrators by O’Quinn
did not support the award, and that “the enforcement of pleading requirements
before an arbitrator is ordinarily a procedural matter for the arbitrator”), cert.
denied, 515 U.S. 1142 (1995).
6
is arbitrary and capricious.” 12 The terms arbitrary and capricious “mean willful
and unreasoning action, action without consideration and in disregard of the
facts and circumstances of the case.” 13 Without a record, we cannot determine
whether the arbitrator acted without consideration and in disregard of the facts
and circumstances of the case and thus whether any mistake made by the
arbitrator rose to the level of gross mistake. 14
An arbitrator manifestly disregards the law when he clearly recognizes the
law but chooses to ignore it or refuses to apply it correctly. 15 The burden is on
the party seeking to vacate the award to demonstrate that the arbitrator acted
in manifest disregard of the law and to bring forth a complete record of the
arbitration proceedings to support such a claim. 16 Although the Crafts claim
that they provided the arbitrator with the applicable law, without the record of
the arbitration proceedings, we cannot determine whether the arbitrator clearly
12
… Statewide Remodeling, Inc., 244 S.W.3d at 568; see also Pheng
Invs., 196 S.W.3d at 330.
13
… Grand Int’l Bhd. of Locomotive Eng’rs v. Wilson, 341 S.W.2d 206,
211 (Tex. Civ. App.—Fort Worth 1960, writ ref’d n.r.e.); Bailey & Williams v.
Westfall, 727 S.W.2d 86, 90 (Tex. App.—Dallas 1987, writ ref’d n.r.e.).
14
… See Statewide Remodeling, Inc., 244 S.W.3d at 569–70.
15
… Pheng Invs., 196 S.W.3d at 331; Home Owners Mgmt. Enters., Inc.
v. Dean, 230 S.W.3d 766, 768–69 (Tex. App.—Dallas 2007, no pet.).
16
… Home Owners Mgmt. Enters., 230 S.W.3d at 769.
7
recognized the applicable law and chose to ignore it or refused to apply it
correctly. Accordingly, we cannot determine whether the arbitrator manifestly
disregarded the law.17
Because we cannot determine whether the arbitrator exceeded his
powers, made a gross mistake, or manifestly disregarded the law, we overrule
the Crafts’ first, second, third, fourth, fifth, sixth, seventh, eighth, ninth, tenth,
and twelfth issues.
In their eleventh issue, the Crafts argue that the arbitrator is guilty of
evident partiality based on the fact that: (1) the arbitrator allowed Davis to put
on evidence of her affirmative claims when she did not prepay the arbitration
fee; (2) the arbitrator initially designated the Crafts, rather than Davis, as the
“claiming parties”; (3) the arbitrator did not dismiss SoSoy from the proceeding;
and (4) the arbitrator did not disqualify Davis’s counsel from representing
SoSoy. The Crafts have not established specific facts that indicate improper
motives on the part of the arbitrator18 or that “establish a reasonable impression
of the arbitrator’s partiality to one party, such as an interest in the outcome or
17
… See id.
18
… See Int’l Bank of Commerce-Brownsville v. Int’l Energy Dev. Corp.,
981 S.W.2d 38, 44 (Tex. App.—Corpus Christi 1998, pet. denied) (noting that
the party asserting evident partiality of the arbitrator as a ground to set aside
an award has a heavy burden), cert. denied, 528 U.S. 1137 (2000).
8
a relationship with a party.” 19 We have no record from the arbitration, and the
facts asserted by the Crafts,20 even if true, do not establish partiality.21 W e
overrule their eleventh issue.
In their final issue, the Crafts argue that the trial court erred by assessing
against them $9,353.07 in arbitration fees and costs when no evidence of the
amount of those costs was timely submitted to the trial court prior to its
judgment. The arbitration award did not specify the amount of arbitration fees
recoverable by Davis; it simply awarded her the fees that she had incurred.
When Davis filed her motion to confirm the award, she asked the trial court to
enter judgment awarding her arbitration costs, but she did not specify the
amount of those costs. The Crafts did not object in their response that her
motion did not include a specific amount for arbitration costs. The trial court’s
judgment, however, listed the amount of arbitration costs that the Crafts now
dispute. The Crafts then filed a motion to modify the judgment, objecting that
19
… In re C.A.K., 155 S.W.3d 554, 564 (Tex. App.—San Antonio 2004,
pet. denied) (noting that an arbitration award alone cannot establish evident
partiality).
20
… See Int’l Bank of Commerce-Brownsville, 981 S.W.2d at 44 (party
asserting partiality bears the burden to establish such partiality).
21
… See Crossmark, Inc., 124 S.W.3d at 429 (holding that a mere
mistake of fact or law does not justify a trial court setting aside an arbitration
award).
9
there was no timely evidence to support the award of arbitration fees and
costs. Prior to the hearing on the motion, Davis’s attorney filed a statement of
arbitration fees, which we construe as a motion to reopen the evidence under
Rule 270 of the Texas Rules of Civil Procedure. 22 At the hearing, the trial court
denied the Crafts’ motion.
It is within a trial court’s discretion to “permit additional evidence to be
offered at any time” when doing so “clearly appears to be necessary to the due
administration of justice.” 23 In a bench trial, the trial court may permit the
introduction of additional evidence even after judgment has been entered if it
does so within the court’s plenary power. 24 Factors the trial court considers in
determining whether to allow additional evidence include whether the party
22
… See Tex. R. Civ. P. 270.
23
… See id.
24
… See McCarthy v. George, 623 S.W.2d 772, 776 (Tex.
App.—Fort.Worth 1981, writ ref’d n.r.e.) (holding trial court did not abuse its
discretion by allowing plaintiffs to reopen the evidence thirty-three days after
trial even though plaintiffs did not argue that failure to submit evidence at trial
was not due to a lack of diligence; under the facts of the case, “development
of this case was clearly in the interest of justice”); see also Harrison v. Bailey,
260 S.W.2d 702, 704–05 (Tex. Civ. App.—Eastland 1953, no writ) (holding
trial court did not err by allowing appellees to introduce evidence at hearing on
opposing party’s motion to reform judgment); Priddy v. Tabor, 189 S.W. 111,
116 (Tex. Civ. App.—Fort Worth 1916, writ ref’d) (holding that trial court did
not abuse its discretion by hearing additional testimony after entering judgment
in bench trial when additional testimony was heard during same term as
original judgment).
10
seeking to introduce the evidence showed due diligence in obtaining that
evidence, whether the evidence is decisive, whether the trial court’s reception
of the evidence would cause undue delay, and whether allowing the additional
evidence would cause an injustice.25 In making this determination, the trial
court should exercise its discretion liberally “in the interest of permitting both
sides to fully develop the case in the interest of justice.” 26
At the hearing on the Crafts’ motion, Davis’s attorney conceded that
although he had had the billing statement with him at the hearing on the motion
to confirm the award, he had inadvertently failed to offer it at that time. But
his diligence in producing evidence is not the only factor that the trial court
could have considered. The court could have determined that allowing the
additional evidence would not cause an injustice. The arbitration award
provided for Davis’s recovery of her arbitration costs. In her motion to confirm,
Davis asked for her arbitration costs in conformance with the award. The
Crafts knew that, if the trial court confirmed the award and tracked the
language of the award in its judgment, the award would include her arbitration
25
… See Hernandez v. Lautensack, 201 S.W.3d 771, 779 (Tex.
App.—Fort Worth 2006, pet. denied).
26
… Id. (quoting Word of Faith World Outreach Ctr. Church v. Oechsner,
669 S.W.2d 364, 366–67 (Tex. App.—Dallas 1984, no writ)).
11
costs. They did not object to the arbitration costs on this ground before the
trial court entered final judgment. And although the Crafts objected at the
hearing on their motion to modify that they had not had the opportunity to
cross-examine on the billing statement, the Crafts’ counsel told the trial court,
“I’m not going to ask [Davis’s counsel] to testify,” even though Davis’s counsel
had personal knowledge about how the fees had been paid. The Crafts could
have examined Davis’s counsel about the fees in an attempt to raise evidence
disputing the accuracy or reliability of the billing statement, but they chose not
to. Because Davis had already been awarded her arbitration costs, and because
the Crafts declined to produce any evidence of their own as to the correct
amount, the trial court’s allowing Davis to reopen the evidence did not cause
an injustice to the Crafts.
Nor did the reopening of evidence cause undue delay. The billing
statement was filed with the trial court after the Crafts’ motion to modify but
before the hearing on their motion. Thus, there was no delay caused by the
trial court’s allowing Davis to introduce additional evidence on the arbitration
costs. And, with no evidence produced by the Crafts to rebut the statement,
the evidence is uncontroverted. We hold that the trial court did not abuse its
discretion by admitting the statement after the judgment but while the trial
12
court retained plenary power, and therefore it did not abuse its discretion by
denying the Crafts’ motion to modify. We overrule the Craft’s thirteenth issue.
C ONCLUSION
Having overruled all of the Crafts’ issues, we affirm the trial court’s
judgment.
LEE ANN DAUPHINOT
JUSTICE
PANEL: CAYCE, C.J.; DAUPHINOT and MCCOY, JJ.
DELIVERED: September 11, 2008
13